Russia has less than 24 hours to come up with $117 million or they're going to undergo the first foreign-currency default since the 1917 revolution, according to Bloomberg News.
Russia's posturing over the war in Ukraine doesn't match up with the economic reality of the country as its stock market continues to be closed for another week. The currency has dropped so low that a ruble is now worth less than a penny in the United States. Debt for the country was downgraded to a "C" by credit agencies last week. Now, they're facing a currency default.
"The government says that all debt will be serviced, though it will happen in rubles as long as sanctions — imposed because of the war — don’t allow dollar settlements," Bloomberg reported Tuesday. "Failure to pay, or paying in local currency instead of dollars, would start the clock ticking on a potential wave of defaults on about $150 billion in foreign-currency debt owed by both the government and Russian companies including Gazprom, Lukoil and Sberbank."
“This will be a monumental default,” said Greylock Capital Associate's Jonathan Prin. “In dollar terms, it will be the most impactful emerging-market default since Argentina’s. In terms of broader market impact, it’s probably the most broadly felt emerging-market default since Russia itself in 1998.”
Corporations are pulling out of the country and shutting their doors. After social media backlash, fast food restaurants like McDonald's and Starbucks closed in the country. Bloomberg called Russia a kind of "commercial pariah" as major companies like Coca-Cola Co. and Volkswagen AG halt operations in the country.
"Businesses and households are facing a double-digit economic slump and inflation accelerating toward 20 percent," the report also said. "About half of the country’s foreign-exchange reserves — some $300 billion — have been frozen, according to the finance minister. Regardless of the Kremlin's policy on foreign debt payments, companies will find it harder to service their obligations as falling demand hits sales and profits."
Bloomberg said that swap markets give it a 70 percent chance of a default and Fitch Ratings called it "imminent."
Read the full report at Bloomberg New.
<i>Correction: The initial article incorrectly said Russia needs to come up with $150 billion. $150 billion is the total amount of debt outstanding, not the amount due for the country's interest payment.</i>
Leave a Comment
Related Post